RBS breaks with past by tearing investment bank apart

Ross McEwan said the bank would call time on investment banking in 25 countries

Ross McEwan, chief executive of the Royal Bank of Scotland (Getty)

The Royal Bank of Scotland boss Ross McEwan all but tore up the remainder of Fred Goodwin’s legacy at Royal Bank of Scotland yesterday, with plans to dismantle large parts of the bank put together by the former RBS chief executive.

Mr McEwan said the bank, which reported its seventh straight year of losses, would call time on investment banking in 25 countries, saying they would never be profitable enough to justify the capital needed to keep them running.

But markets took a dim view of the plans and the numbers. Ian Gordon, an analyst at Investec, reaffirmed his “sell” rating and said he expected little more than a break-even performance in 2015.

The upshot of Mr McEwan’s plans will be thousands of job losses in an investment banking operation that employs 16,000 people globally but will remain active in just 13 countries when the programme is complete. Mr McEwan has not said exactly how many of those jobs will go.

The losses, of £3.5bn, were an improvement on the £9bn recorded in 2013 and largely due to one-offs such as a £4bn writedown related to the sell-off of its US arm Citizens.

But Mr Goodwin’s legacy continues to haunt the bank, which faced £2.2bn in fines and payouts to consumers over issues such as PPI mis-selling. Mr McEwan, who has given up a £1m share allowance for 2014, said that despite its historic problems, RBS made a £3.5bn operating profit, against a loss of £7.5bn in 2013.

He also floated the prospect of a resumption of dividend payments in 2016, although he will have to secure the approval of the Bank of England’s Prudential Regulation Authority.

RBS also confirmed that Sir Howard Davies will take over from Sir Philip Hampton as chairman.

The bank is set to sell a portfolio of $36.5bn (£23.5bn) of US and Canadian loans to Japan’s Mizuho Bank.

The deal will realise a loss of £200m, but it will cut risk-weighted assets in the investment bank by around £5bn – out of the £25bn in reductions targeted for this year and £60bn by 2019.